Understanding the market is key to buying a house. If you are a potential homeowner, this 2017 housing outlook will help prepare you for the coming year.

Prices will rise slowly but surely.

Every month since last October, prices rose and experts expect the prices to continue to rise throughout 2017 slowly. Chief economist at real estate brokerage Redfin Nela Richardson said, “We believe price increases will hold steady despite slowing sales growth, because homebuyer demand is stronger now than it was at the same time last year, and because we foresee a small uptick in homes for sale.”

According to Forbes, “Redfin expects the median home sale prices to gain 5.3% in 2017 compared to 2016, which would not be a major change from the 5.5% year-over-year gain expected to close out this year. Zillow is forecasting the median home value to rise 3.2% from $192,500 between November 2016 to November 2017. Zillow’s home value index rose 6.5% in the year ending November 30th.”

Interest rates will rise.

According to the National Association of Realtors (NAR), the Federal Funds Rate will reach 1% by 2017, and continue to increase to 1.6% by 2018. The rate was at .1% in 2015 and rose to .4% by 2016.

Tim Hart from Reality Times reports, “While the Fed Funds Rate increases, mortgage rates will follow. 30-year fixed mortgage rates decreased from the 3.9% in 2015 to 3.6% in 2016, but the NAR anticipates a gradual increase over the next two years, reaching to 4.6% by 2017, and 4.8% by 2018. However, compared to the dreaded 80’s 10-16% averages, these mortgage rates are still very affordable.”

The Federal Reserve raised interest rates in December for only the second time since 2006. If there are more increases within the next few years, this will cause mortgage rates to rise and could potentially make it harder for potential homebuyers to afford the home of their dreams. However, even if they do rise, it will still be a better deal that it has been in the past.

More Millennials will become homeowners.

Zillow reports that nearly half of all buyers in 2016 were first-time buyers.

According to NAR Chief Economist Lawrence Yun, “Young adults are settling down and deciding to buy a home after what was likely a turbulent beginning to their adult life and career following the Great Recession.”

According to Zillow, “More Millennials will become homeowners, driving up the homeownership rate. Millennials are also more racially diverse, so more homeowners will be people of color, reflecting the changing demographics of the United States.”

Continued lack of inventory.

The lack of inventory in 2016 and experts believe that this will continue to be a problem in 2017.

What potential sellers decide to do in 2017 will reflect in the amount of inventory on the market and since the mortgage rate is rising, sales may decrease. Prices tend to go up when the demand has not changed and the supply is sparse.

“Home construction is at full tilt and it’s still not filling the bill, particularly affordable housing,” said Steve Cook, editor of Real Estate Economy Watch. “The average price of a new home is increasing still; we’re not serving the mid to lower-tier market with new home construction. So you’re not going to see much relief in affordability.”

According to The Fiscal Times, “While builders have increased production, they’re still only putting homes up at about 60 percent of the normal pace. Total housing inventory at the end of September increased 1.5 percent to 2.04 million existing homes for sale, but that’s still 7 percent lower than last year. Unsold inventory in September was at a 4.5 percent-month supply, down from 4.6 percent the previous month. (A six-month supply is considered a healthy market.)”